What is State Aid?
It is aid from a member state to business which the Treaty of Rome declares incompatible with the common market - with certain possible exceptions. Broadly, it means a member state’s financial aid which favours selected businesses and has the potential to distort competition and affect trade between European Union member states:
Article 87 (1) EC States: “Save as otherwise provided in the treaty, any aid granted by a Member State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it effects trade between Member States be incompatible with the common market.”
Why Have State Aid rules?
State aid rules aim to ensure fair competition and a single common market. That is why the European Community founding Treaty generally forbids state-funded aid that would favour certain businesses or goods production.
The European Commission is given very wide power and responsibility by the member states to monitor and control state aid within the European Union. This includes:
- power to consider and decide whether or not proposed state aid is compatible with the single market. Only the Commission has this power
- duty to keep existing state aid under review
- duty to require repayment of unlawful aid
- duty to carry out formal investigations into the compatibility of proposed aid
- power to require information about state aid being paid by member states
How Do I Recognise a State Aid?
Article 87(1) sets out criteria, all of which must be met for a state aid to be present.
- aid favours certain undertakings or the production of certain goods
- it's provided through State resources
- it distorts or threatens to distort competition
- aid affects trade between Member States.
If it is absolutely certain that one of these conditions is not met, then you are not dealing with a state aid.
Use of Structural Funds as State Aid
Structural funds are the European Union’s main instruments for supporting social and economic restructuring across the Union.
Although a form of European funding, structural funds are still considered a state resource as the national government has an influence in how they are spent. The structural funds regulation requires the managing authority to ensure that all operations for an approved structural fund programme comply with the state aid rules.
Many uses of structural funds do not come within the scope of the state aid rules e.g. support for an infrastructure project of general public benefit that has been tendered. Where individual application of the funds does involve state aid, the managing authority must ensure that the structural fund contribution as well as other public funding complies with the state aid rules.
Is the European Social Fund a State Aid?
For significant parts of both the Objective 3 and Objective 2 programme, the ESF and public match funding provided to projects does not constitute a state aid. Where ESF activity is supporting individuals to improve their employability, and helps them move closer to the labour market, the aid is being provided to the individual and there are no direct benefits to enterprises.
Where support is being provided to individuals in employment there may be state aid implications, as employers are receiving support towards the costs of training.
